Would you buy a condo in a building built on leased land?

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Topic: Would you buy a condo in a building built on leased land?

Real Estate – General February 15, 2013 at 1:27 am

Would you buy a condo in a building built on leased land?

The development planned for Pier 1 of Brooklyn Bridge Park will apparently be built on leased land. This article http://www.brooklynpaper.com/stories/34/32/dtg_bridgeparkhotel_2011_08_05_bk.html says “As part of the project, developers would get a 98-year lease after building a 170- to 225-room hotel, a 150- to 180-unit residential building, and creating at least 300 parking spaces, public restrooms and park storage facilities.”
Would you buy a condo in this development that is on leased land? Also, the building will have special taxes earmarked to maintain the public park. Will these taxes be additional to regular real estate taxes? The above article says As part of that funding plan, the city will collect ground rent and property taxes earmarked for the 85-acre greenspace from Pier 1 and future high-rises at John Street in DUMBO and the southern leg of the park at Pier 6.”
Brownstoner also reported about the John Street Con Ed site being sold to Brooklyn Bridge Park and the land to be leased to a developer to build a residential building. Again, what are the concerns on buying a condo on leased land? And will common costs and taxes be higher in these properties?

http://www.brownstoner.com/blog/2013/01/con-ed-and-bb-park-strike-9-2m-deal/

 

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I think all of Battery Park City is leased land

  Search through many discussions on this topic on streeteasy.com.  Buying in a land-leased has some very substantial pitfalls, not the least of which is that the units are not financeable as the remaining term on the lease approaches 30 years.  An UES coop recently had to purchase the land under its lease, and its maintenance is now so high that the units can’t be sold for $300 sq ft.  People trying to renew land leases from 40-50-60 years ago are facing insane rent increases given the change in property values over that time.  That said, virtually all of Battery Park City is a land lease and, although there were some issues recently that affected the marketability of those apartments, the land is owned by a government entity, and people presume that the BPC will not refuse to renew the lease or extract ransom lease payments like a private landlord might (in fact the BPC recently agreed to restructure its lease gratuitiously to lower potential future rent payments).  So, you need to understand the terms of the lease, particularly the duration, and consider that carefully in your evaluations.

The carrying costs on BPC apartments are huge! I always wondered why apt prices looked so reasonable there until I saw the monthly costs — a real drag on values.

Most buildings in NYC are built on land owned by the building, so  you would need to be very cautious of these types of buildings. In London it is common for apartments or houses to “sold” as leasehold, i.e. you buy a lease on a brand new apartment for 125 years, the price is presumed to be the present value of all the rent paid now. In the first few years as rental prices increase, the value of the remaining leashold increases, but as the termination date of the lease approaches, the value of the leasehold declines. Leasholds are bought and sold all the time. At the end of the leasehold the property reverts to the landowner.
In New York, you should be careful of unusual ownership arrangements, they can be difficult to finance, and as the lease approaches the end of its term, the price of apartments goes down. A prudent condo board should establish a special reserve fund to purchase/re-lease the land at the end of the lease, but most condo boards, or more properly their owners, don’t like taking the very long-term view.
Be informed and cautious, but if it’s properly priced, it should be okay. Talk to an experienced attorney. Also think about your own situation, if you are in your late thirties or younger, and the lease is forty years, you need to ask yourself, “what happens if I am still living here in thirty years?”

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